The Use of "Most-Favored-Customer" Clauses Is an Example of

question 32

Multiple Choice

The use of "most-favored-customer" clauses is an example of

• A)incenting members to maintain the cartel, because if they lower the price for one customer, they have to lower it for previous customers as well.
• B)incenting members to maintain the cartel, because if they raise the price for one customer, they have to raise it for previous customers as well.
• C)giving customers special perks for purchasing goods from members of the cartel.
• D)selling higher quality goods and services to favorite customers.

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Definitions:

Risk Aversion

The preference to avoid uncertainty and risky situations, often influencing economic and financial decisions.

Adverse Selection

The case in which an individual knows more about the way things are than other people do. Adverse selection problems can lead to market problems: private information leads buyers to expect hidden problems in items offered for sale, leading to low prices and the best items being kept off the market.

Moral Hazard

The situation that can exist when an individual knows more about his or her own actions than other people do. This leads to a distortion of incentives to take care or to expend effort when someone else bears the costs of the lack of care or effort.

Risk Aversion

The tendency to prefer certainty over uncertainty, avoiding risk in decision-making or preferring safer investments.